Great Places to Work®: Resilience in Times of Crisis

• Date: 01 May 2016
• Author: Nelson Areal,Ana Carvalho
• DOI: http://doi.org/10.1002/hrm.21676
• Published date: 01 May 2016

Human Resource Managementt, May–June 2016, Vol. 55, No. 3. Pp. 479–498

© 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI:10.1002/hrm.21676

Correspondence to: Ana Carvalho, University of Minho, School of Economics and Management, 4710-057 Braga,

Portugal, Phone: +351 253604510, Fax: +351 253601380, E-mail: anac@eeg.uminho.pt

good employee relations will reap particular advan-

tages. The benefits announced by the Great Place

to Work® Institute themselves comprise reduced

voluntary turnover, higher profits, and superior

stock market returns compared to major reference

indices. They also claim, “When times are tough,

employees at great workplaces show the resiliency

to pull through” (Great Place to Work® Institute,

2011b). This statement implies that not only are

best places to work more successful in general, but

also that they are especially resilient in periods of

crisis.

Although the claims of increased market

performance have been previously studied, this

peculiar capacity to withstand crises has not.

Evidence from the human resource management

(HRM) literature suggests that best employers

might be better prepared to resist crises. Other

studies show that particularly reputable firms are

somewhat shielded from market crashes. In this

article, we examine the financial performance of

The “1 00 Best Companies to Work for

in America” list has been published for

over 25 years. The very first list was pub-

lished in 1984 in the book by Levering,

Moskowitz, and Katz. In 1993, the list

was updated in a similar book by Levering and

Moskowitz. Since 1998, Fortune magazine has

published the lists produced annually by the

Great Place to Work® Institute, which rank the

100 Best Companies to Work For according to

their own five dimensions of credibility, respect,

fairness, pride, and camaraderie. The ranking of

workplaces is two-thirds based on “employees’

responses to a randomly distributed employee

survey, which is taken anonymously and is a

representative sample of each company’s popu-

lation,” complemented by the analysis of the

company’s programs and practices (Great Place to

Work® Institute, 2011a).

The attraction of this distinction is the expec-

tation that companies that develop and maintain

GREAT PLACES TO WORK®:

RESILIENCE IN TIMES OF CRISIS

ANA CARVALHO AND NELSON AREAL

We study the resilience of the “100 Best Companies to Work for in America” in

times of fi nancial crisis by analyzing their long-term fi nancial performance. Apart

from implementing methods that tackle the statistical problems of stock returns,

we use a conditional model to measure fi nancial performance in periods of mar-

ket growth (bull markets) and market downturn (bear markets). We fi nd that best

places to work are indeed resilient in times of crisis since neither their fi nan-

cial performance nor their systematic risk are affected during bear markets: top

companies continue to outperform the market during periods of crisis, and the

performance of lower-ranked great workplaces does not deteriorate. Moreover,

we fi nd that previous studies were overestimating performance, and only great

workplaces on the top half of the rankings exhibit positive excessive returns.

©2015 Wiley Periodicals, Inc.

Keywords: employee relations, best employer awards, fi nancial performance,

fi nancial crises, bull and bear markets

480 HUMAN RESOURCE MANAGEMENT, MAY–JUNE 2016

Human Resource Management DOI: 10.1002/hrm

Edmans (2011) used more sophisticated finan-

cial measures to demonstrate that great work-

places generate superior long-term returns, even

when controlling for industries, factor risks, or

firm characteristics. He also used the more com-

plete set of data yet, comprising the 1984 and

1993 lists, and the annual rankings from 1998

to 2009. Edmans also found evidence of positive

excess returns and concluded that the markets do

not adequately value intangible assets, such as

superior employee relations, even when certified

by an independent institution and abundantly

publicized. He proposed that this is especially

true of intangible assets, the rewards of which are

long term in reach, as is the case of being a great

workplace.

Overcoming the Limitations of Previous

Studies

Except for Edmans (2011), previous studies use

either accounting measures or unsophisticated

financial performance measures. Accounting mea-

sures are based on historical data and are therefore

backward looking, not easily capturing intangible

value (Berrone, Surroca, & Tribó, 2007; Edmans,

2011; Hillman & Keim, 2001) and failing to fully

assess the potential value of good employee rela-

tions. Also, accounting data are susceptible to

management manipulation and the choice of

accounting procedures (McGuire, Sundgren, &

Schneeweis, 1988). Stock market information pro-

vides a better alternative, more closely represent-

ing stakeholder value, allowing to control for risk,

and “suffer[ing] fewer reverse causality issues”

(Edmans, 2011, p. 622), which is of particular

interest in this study given the recurrent cautions

against the possibility of reverse causality in the

link between human resource management and

organizational performance (Becker & Huselid,

2006; Wright, Gardner, Moynihan, & Allen,

2005). It is also forward looking, concentrating on

the expected returns of companies rather than on

their historical performance, and is therefore more

likely to consider information about a company

(such as that provided by an award on employee

relations) that might affect its future (tangible as

well as intangible) value.

Considering risk is essential, since financial

performance can be adequately measured only

when returns are risk adjusted. Only four of the

studies summarized in Table I use at least some

measure that takes risk into account. Likewise, it

is important to consider the variation of risk over

time, which none of the previous studies does.

Accounting measures disregard risk altogether,

whereas traditional measures of long-term finan-

cial performance assume that risk is constant over

great workplaces during periods of crisis. In order

to test their resilience in tough times, we assess

their financial performance under different mar-

ket conditions, namely, during periods of market

growth (bull markets) and in periods of market

decline (bear markets). The methods we use also

allow us to refine the results of previous studies

by relying on more robust statistical methods and

financial performance measures.

Previous Studies on the Financial Impact of

Best Places to Work

There have been at least seven studies to specifically

examine the impact on financial performance of

being one of the “100 Best Companies to Work for

in America.” Table I summarizes the data, meth-

ods, and findings of previous studies concerning

this matter. The oldest is an event study by Hannon

and Milkovitch (1996), who tested the effect on

share prices of the announcement, in May 1984,

of this list. They found no significant impact. Later

studies, however, obtained different results. Lau

and May (1998) compared the 1993 list of great

workplaces with the Standard & Poor’s (S&P) 100

and found that the former showed higher sales

and asset growth, as well as higher profitability (as

measured by return on assets), for data from 1990

to 1994. Fulmer, Gerhart, and Scott (2003) found

that firms on this list generally do better than a

comparable group in terms of return on assets and

market-to-book ratios (using the 1998 ranking

and financial data from 1995 to 2000). They also

found that they substantially outperform the mar-

ket for cumulative (long-period) returns but not

consistently for annual returns. Filbeck and Preece

(2003) obtained similar results on the same 1998

list, using daily stock market data, ranging from

1987 to 1999. They carried out an event study for

the announcement of the list, concluding that

receiving this award acts as a positive signal to the

market. Fulmer etal. (2003, p. 986) surmised that

these firms “are able to create attractive workplaces

without hurting the bottom-line” and sometimes

even outperform the market. Ballou, Godwin, and

Shortridge (2003) examined the market values of

firms ranked in the 1998 to 2001 lists, controlling

for book value, past operational performance, and

research and development expense. They found

that companies ranked higher up on the list had

higher market value, supporting the notion that

the better the organizational climate and posi-

tive employee attitudes, the greater the financial

impact. Faleye and Trahan (2011) performed a

similar study on the 1998 to 2005 lists and found

evidence of abnormal excess returns both in reac-

tion to the announcements of the lists and for

long-term cumulative returns.